In conducting its business, the Brembo Group is exposed to various financial risks, including market, commodities, liquidity and the credit risks.
Financial risk management is the responsibility of the Parent’s Central Treasury & Credit Department, which, together with the Group’s CFO, evaluates all the company’s main financial transactions and the related hedging policies.
Interest Rate Risk Management
Since most of the Group’s financial debt is subject to variable interest rates, it is exposed to the risk of interest-rate fluctuations.
To partially reduce this risk, the Group has entered into several medium/ long-term fixed rate loan agreements accounting for approximately 16.0% of gross financial position. The objective is to eliminate the variability of the borrowing costs associated with a portion of debt and benefit from fixed rates.
The Group’s Central Treasury & Credit Department constantly monitors rate trends in order to evaluate in advance the need for any changes to the financial indebtedness structure.
Exchange Rate Risk Management
Since Brembo operates in international markets, it is exposed to exchange rate risks.
To mitigate these risks, the Group uses natural hedging (offsetting receivables and payables) and hedges only net positions in foreign currency, using mostly short-term financing denominated in the currency to be hedged.
Other hedging instruments used by the company, where advisable, include forward contracts, which are also used to offset differences between receivables and payables. This policy reduces exchange risk exposure.
The Group is exposed to changes in prices of main raw materials and commodities. In 2016, no specific hedging transactions were undertaken.
It should, however, be recalled that contracts in place with major customers include a periodic automatic indexation process linked to raw material price movements.
Liquidity risk can arise from Brembo’s inability to obtain the financial resources necessary to guarantee its operation. The Central Treasury & Credit Department implements the main measures indicated below in order to minimise such risk:
– it constantly assesses financial requirements to ensure that appropriate measures are taken in a timely manner (obtaining additional credit lines, capital increases, etc.);
– it obtains adequate credit lines;
– it optimises liquidity, where feasible, through cashpooling arrangements;
– it ensures that the composition of net financial debt is adequate for the investments carried out;
– it ensures a proper balance between short- and medium-/long-term debt.
Credit risk is the probability that a customer or one of the parties to a financial instrument will cause a financial loss by failing to perform an obligation. Exposure to credit risk arises, in particular, in relation to trade receivables.
In this sense it should be noted that the parties with whom Brembo has commercial dealings are primarily leading car and motorbike makers with a high credit standing.
The current macroeconomic context has made continuous credit monitoring increasingly important, so that situations where there is a risk of insolvency or late payment can be anticipated.
Risk Management Process: Risk Financing
Following on from the above mitigation measures, and in order to minimise the volatility and financial impact of any detrimental event, under its risk management policy, Brembo has provided for the residual risks to be transferred to the insurance market, provided that they are insurable.
Brembo’s changing needs through the years have been specifically reflected in its insurance coverage, which has been optimised to significantly decrease the company’s exposure, especially to possible damages arising from the manufacturing and sale of its products.
This has been achieved through risk management, aimed at identifying and analysing the most critical areas, such as the risks associated with countries whose laws are particularly detrimental for manufacturers of consumer goods. All Brembo Group companies are covered against the following strategic risks: property all risks, general liability, general product liability, product recall.
Additional coverage has been arranged locally based on the specific requirements of local legislation or collective labour contracts and/or corporate agreements or regulations.
Insurance analysis and transfer of the risks to which the Group is exposed are conducted in collaboration with an insurance broker, which supports this process with its international organisation and is responsible for the compliance and managem